Many Wisconsin businesses rely on trade secrets to remain competitive. Trade secrets often comprise customer lists, sensitive marketing information, un-patented inventions, software, formulas and recipes, techniques, processes, and other business information that provides a company with a business edge.
Not all company information constitutes a trade secret. Information is more likely to be considered a trade secret if it is:
For example, if you are in the business of selling jewelry, the price of gold is not a trade secret. Your business might use this figure frequently, but it is publicly available to other businesses and to the public. However, your list of customers who recently purchased wedding rings would indeed be considered a trade secret.
Employers often try to protect trade secrets through nondisclosure agreements (NDAs) with their employees. A nondisclosure agreement is essentially a contract in which an employee promises to maintain the confidentiality of certain information that is disclosed during employment or other related types of business transactions. By using a nondisclosure agreement, an employer can ensure that its secrets stay secret by giving the company legal recourse against an employee who discloses them.
NDAs are commonly used across all 50 states by companies of all sizes. However, there are some unique statutory aspects of protecting trade secrets in Wisconsin.
Wisconsin is one of the many states that have adopted the Uniform Trade Secrets Act (UTSA). The UTSA is a model law, which various states have implemented in whole or in part. Wisconsin’s trade secret law can be found at Wis. Stat. Ann. Secs. 134.90.
Wisconsin’s version of the UTSA refers to the theft of trade secrets as "misappropriation." Under Wisconsin law, "misappropriation" means the acquisition of a trade secret by someone who knows or has reason to know that the trade secret was acquired by improper means, such as theft, bribery, or breach or inducement of a breach of duty to maintain secrecy. It also includes the disclosure or use of a trade secret without consent by someone who used improper means to acquire knowledge of the trade secret, for example, an ex-employee who spills company secrets to a rival.
Wisconsin prohibits use of trade secrets by a company that has “has reason to know” that the material constitutes a trade secret. This is known as constructive knowledge (compared to actual knowledge). In other words, even if a Wisconsin company was unaware it possessed purloined trade secrets, it could still be sued under Wisconsin law if it should have known.
Under Wisconsin law, a trade secret thief can be prevented from disclosure by court order, known as an injunction. This is true for both actual or threatened misappropriation.
The injunction may be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate any commercial advantage that otherwise would be derived from the misappropriation.
In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances can include a theft that is so bad that the court order would be meaningless.
A victim of trade secret theft can also seek financial compensation that measures the actual loss attributed to the theft or the profits (or “unjust enrichment”) acquired by the trade secret thief. In egregious situations, a Wisconsin court can award punitive damages, up to twice the amount of any award. Attorney fees will also be awarded in egregious (willful and malicious) situations or if a claim is brought in bad faith.
Any legal action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. In other words, if you believe that a trade secret has been misappropriated from your business, you must act relatively quickly. You should not sit on your hands, or else you could preclude your ability to sue for infringement.
In addition to Wisconsin’s legislation regarding trade secrets, certain federal rules also apply in Wisconsin. The Economic Espionage Act of 1996 makes the theft of trade secrets a federal crime. The Act prohibits the theft of a trade secret by a person intending or knowing that the offense will injure a trade secret owner. The Act also makes it a federal crime to receive, buy, or possess trade secret information knowing it to have been stolen.
The Act’s definition of “trade secret” is similar to that of the UTSA. The penalties for a violation of this statute include a potential prison term of 15 years and fines up to $5 million, depending on whether the defendant is an individual or a corporation. A private party can still sue for trade secret theft even if the federal government files a criminal case under the Economic Espionage Act. Note that in most cases, however, trade secrets are civil matters, and are not criminally prosecuted by the federal government.